Global Advanced Research Journal of Economics, Accounting and Finance (GARJEAF)
August 2015 Vol. 3(2), pp. 026-040
Copyright © 2015 Global Advanced Research Journals

Full Length Research Paper

Sources of Macroeconomic Imbalances in Malawi and Policy Solutions

Mark Lungu

An economist at the Reserve Bank of Malawi

E-mail: mlungu@rbm.mw

Accepted 24 June 2015

Abstract

This paper uses a score board to determine the sources of macroeconomic imbalances in the Malawi economy during the period 2003 to 2014. The study employs a scoreboard to capture and assess macroeconomic imbalances. The design of the scorecard is based on the European monetary Union (EMU), developed under the Macroeconomic Imbalance Procedure (MIP) in September 2011. From the external sustainability side, Malawi has high external position vulnerabilities which are depicted in sources of imbalances in the economy namely the persistent current account deficit, Net international Investment Position (NIIP) deficit, unfavorable terms of trade as evidenced by the low export market share and unstable Real Effective Exchange rate (REER). From the internal sustainability perspective, sources of macroeconomic imbalances include volatile gross domestic product, unstable prices, high government domestic debt, low private sector credit, high unemployment and low capacity utilization.

Keywords: Macroeconomic, Exchange rate, Policy, Utilization, Imbalances.